China’s economy
China is facing accelerated economic challenges. After the COVID-19 pandemic, economic growth has slowed down, and major industries have lost momentum for recovery. The core industry is the real estate industry, and the industrial and retail industries are also directly reflected in exports.
In light of the figures, many economic experts and analysts have called for the need for a new stimulus package to support key sectors of Beijing’s $18 trillion economy.
Beijing took a step in that direction on Wednesday, pledging to support the private sector to “get bigger, better and stronger” through a series of measures aimed at helping private companies and boosting a slowing post-epidemic recovery, betting on more supportive programs for the industrial sector, especially exports, to help the recovery.
- Most sectors, from trade to industrial profits and consumer prices, have underperformed analysts’ forecasts over the past few months after recovering from COVID-19 restrictions in the first quarter.
- China announced on Monday that its gross domestic product rose 0.8% in the second quarter from the previous three months. That was a slowdown from the economy’s 2.2% growth in the first quarter.
- This economic slowdown has led to growing calls for significant monetary and fiscal stimulus to support traditional debt-driven growth engines, particularly in infrastructure and real estate.
A report in the Financial Times this week focused on the general crisis facing Chinese policymakers in the real estate sector, the main engine of the economy, and the crisis in one of Beijing’s main growth engines (trade) as demand for Chinese exports fell as Western central banks raised interest rates.
- According to the latest data from China Customs, the value of China’s exports in US dollars in June fell 12.4% year-on-year.
- Geopolitical tensions with the U.S. have also fueled negative trade sentiment, prompting Western companies to talk loudly about “de-risking” their supply chains and away from China.
- Manufacturers are under pressure not only from falling exports, but also weak domestic demand for construction materials and household durables due to a housing slump.
- “Orders and profits have been falling for the past 16 months, so it’s hard for companies to trust this environment…Companies don’t want to expand because many companies have excess capacity,” Wang Tao, chief China economist at UBS Investment Bank, said, pointing to the government’s attempts to reassure the private sector.
During the pandemic, the government has launched action in many important areas, starting from limiting the influence of real estate companies, extending to e-commerce platforms (..), and it is hoped that the state will now call for a suspension of some of these measures.
China’s state plan to counter weak growth
Incentives
Given these figures, the question arises: can Beijing continue on the same path (the economic policies it is following) as its growth engine stalls? Or, according to the old calculation, a certain amount of growth needs to be maintained to ensure the activation of social stability and pave the way for a return to large-scale stimulus?
Here it is mainly mentioned that the real estate industry is one of the main drivers of China’s growth.
- The biggest challenge is the real estate sector, which has fallen again in recent months after stabilizing at the beginning of the year.
- The government announced this week that a previous credit support scheme for developers would be extended by a year. It also lowered lending rates and announced other measures to support the industry.
- But some question whether this will stabilize the market.
- A real estate expert in Wuhan said developers don’t want to invest and consumers don’t want to buy houses, especially after Evergrande, one of China’s largest and most indebted conglomerates, went bankrupt, the report said.
Economists say that while financial markets need stimulus, Mr. Xi and policymakers see the slowdown in housing as clearly a necessary, albeit painful, adjustment to the old heavily indebted economic model.
Arthur Cropper, co-founder of consultancy group Longzhou Economics, said, “There is a general consensus that leadership is more optimistic than the market amid the housing crisis and a slow recovery in consumer confidence… While economic growth may hit the 5 per cent target this year, President Xi Jinping may be willing to let the economy slide further in the coming years as the economy adjusts to new realities… The calculation is that most households have already bought their own homes and private businesses will adapt to the new, lower growth trajectory.”
industry
Dr. Bilal Shuib, director of the Vision Economic Research Center, pointed out to the “Sky News Arab Economy” website that China’s industrial sector is facing continuous pressure, especially the high global inflation rate and high raw material costs, which make it more difficult for industrial enterprises to operate.
He added other factors, including oil prices reaching $115 a barrel sometime last year, which have clearly impacted transportation and freight costs as well as raw material prices, all of which have supported slowing growth in China, which relies heavily on the industrial sector and its various exports.
It also showed weak global purchasing power under the weight of current economic conditions caused by recent geopolitical developments, and high inflation, which has greatly affected China’s export sector, with falling external and internal demand, one of the factors underpinning the slowdown in growth.
Shuaib believes that in the coming period and after the measures are taken, the Chinese economy needs broader economic stimulus actions, especially in the industrial sector, in order to be able to face fierce competition with other manufacturers, at a time when many governments are trying to provide various support to the industry in other countries, he added: “I believe that the Chinese government needs to provide more support in the coming period, whether it is tax exemptions for manufacturers, or financing injected into the market with more convenient conditions for factories, as well as supporting Chinese factories by expanding international agreements with other markets and countries under the new stimulus plan.
Citing guidelines issued by the Communist Party of China Central Committee and the State Council on Wednesday, Xinhua said China would strive to provide a good business environment for top-tier markets. The agency reported that:
- “The private economy is a new force to promote Chinese-style modernization, an important foundation for high-quality development, and an important force to promote my country’s comprehensive construction of a socialist modern power.”
- These measures include protecting the property rights of private enterprises and businessmen, and ensuring fair competition in the market by removing barriers to market entry.
- The guidelines will include support for companies eligible for stock exchange offerings and refinancing.
- The guideline also states that relevant departments will promptly refute “false remarks and practices” that may harm the interests of private companies and respond to their concerns in a timely manner.
Optimistic about achieving goals
Hussein Ismail, an expert on China affairs and deputy director of the Arabic edition of China Today magazine, told the Sky News Arab Economy website that Beijing can move forward and achieve the 5% growth target for the full year of 2023, noting that the recently released official data for the second quarter of this year shows a relative improvement compared with the first quarter.
China economy .. data misses expectations, confuses markets
This came after GDP growth (year-on-year) accelerated to 6.3% in the second quarter, compared with 4.5% in the first three months of the year (but well below expectations for 7.3% growth).
China’s gross domestic product grew just 0.8 percent in the second quarter from the previous quarter, compared with analysts’ expectations in a Reuters poll for a 0.5 percent rise and compared with 2.2 percent in the first quarter of the year, according to data released by the National Bureau of Statistics.
He noted that this was against the backdrop of many stresses and negative developments in the global economic and geopolitical environment, including geopolitical conflicts affecting the entire global economy. He noted that China’s economy faces many challenges against this backdrop, especially as data shows a decline in exports, in addition to being affected by tensions in the Pacific and other parts of the world that will hinder or disrupt production and supply chains.
But he has faith in Beijing’s ability to achieve positive outcomes and meet growth targets. He also noted that the Chinese economy “remains generally better than many major economies in terms of growth indicators”.
On the other hand, the New York Times published a report that the Chinese economy is still faltering despite positive data from the Chinese government. The newspaper quoted Diana Chuileva, chief economist at Inodo Economics, as saying that comparing the period to the same period last year “paints a misleading picture of China’s economic performance”.
On the other hand, although the Financial Times reported that the Biden administration has lowered its hopes for an immediate easing of tariffs on China despite senior U.S. officials saying they maintain a highly constructive relationship with Beijing, Ismail talked about the impact of U.S.-China relations on Beijing’s economic prospects and believed that “after U.S. Treasury Secretary Yellen’s visit to China, the two countries are moving toward so-called cooperation and competition…perhaps the intensity of differences will weaken in the future because both sides realize the importance of this necessity.” Come to an understanding, especially in at least the area of business communications.
He added: “I don’t expect that we will have many major trade disputes, whether it is imposing tariffs or blocking additional imports and exports. I believe that the relationship between the two countries will achieve some kind of breakthrough on the trade side to meet the basic requirements of both sides.”